After a few weeks of stabilizing, China’s stock markets are once again in turmoil.
China’s stock markets peaked in June following a dramatic spike over the past year. But then the markets suddenly spiraled out of control in mid-June, falling by around 30 percent in just a few weeks. After aggressive intervention by the Chinese government to stop the bleeding, including suspending large market players from trading for six months, injecting new liquidity into the market, and slashing interest rates, the crisis seemed to subside. Companies also put off fresh IPOs and many suspended trading in order to prevent their share prices from falling further.
By early July, it appeared that a full-blown meltdown had been averted. Two to three weeks of relative stability seemed to confirm that the ship had been righted. Related: 9 Reasons Why We Should Be More Worried About Low Oil Prices
But the worst may not be over. The Shanghai Composite dropped 8.5 percent on July 27, once again throwing China’s financial stability into doubt. The one-day loss was worse than anything experienced last month, and in fact, it was the largest single-day decline since February 2007. The move came following negative data on Chinese industrial profits, portending a broader economic slowdown. With China’s economy sputtering, the highs of the stock markets appear increasingly detached from reality, sparking fears of a bubble bursting. Related: Why Bigger Is No Longer Better In Energy
Now, the chaos appears to be spreading. Due to fears over China’s financial situation, stock markets dropped by more than 2 percent in India, Russia, and Saudi Arabia. Emerging markets across the world are not immune, and the MSCI Emerging Markets Index lost another 1.9 percent on July 27, and absent a dramatic rebound, July will mark the worst monthly performance for the index in three years. Related: Busting The Myth Of A ‘Green Europe’
As one would expect, the bearish sentiment is pushing down oil prices, which hit their lowest levels in months. WTI traded down 1 percent on July 27, falling below $48 per barrel, and Brent dropped below $54.
Russia’s currency, the ruble, continues to lose value as oil prices tank. The ruble hit a four-month low on July 27. Russia’s bond prices dropped again, pushing yields to their highest levels in two months.
By Charles Kennedy of Oilprice.com
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